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Foreclosure after bankruptcy

Due to the way that the law handles foreclosures, some New Jersey residents may file bankruptcy and discover that their home is still being foreclosed upon by their lender. While a number of people use Chapter 7 bankruptcy filings to discharge debt, they do not necessarily enable someone to keep their home. Even if a mortgage was discharged as a part of a bankruptcy, the lender can still come in and take over someone’s home at a later time.

The ways that banks can take a property back from an individual include a deed in lieu of foreclosure and either a judicial or nonjudicial foreclosure. A deed in lieu of foreclosure is when the homeowner gives up all interest in the home, and it is generally slightly better for someone’s credit report than a foreclosure. With a judicial foreclosure, the bank is required to go through the court system to be able to take control of a property. On the other hand, a nonjudicial foreclosure enables the bank to sell a property at a foreclosure auction and does not require the approval of the court. However, the lender must go through the state’s foreclosure statutory process first.

The bank is not given a way to recover a home in the bankruptcy, so it must exercise one of the those methods for doing so. In some cases, banks will wait until the bankruptcy has completed before starting or continuing the foreclosure process, but in others, the bank will petition to remove the home from bankruptcy protection so that the foreclosure sale can proceed.

Filing for bankruptcy can help people regain control of their finances and make a fresh start. A lawyer may be able to determine whether bankruptcy or another alternative form of debt relief is appropriate.

Source: ABC News, “Foreclosure on Property After Bankruptcy?“, Justin Harelik, October 25, 2013

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